Today’s Key Takeaways: Alaska’s Cook Inlet: Left out in the cold by lawmakers. Native groups hurt by Biden’s Alaska Mining Limits.
NEWS OF THE DAY:
With just under two weeks to go in the session, the legislature does not seem to be serious about adopting policy that will create a more favorable business climate for gas exploration, development, and production in the Cook Inlet. Providing more opportunities for gas storage may be the only bill that has a chance.
Cook Inlet Bill Updates
HB 223: TAX & ROYALTY FOR CERTAIN GAS
Introduces a significant adjustment to the royalty rates and payments structure for certain oil and gas production, by reducing the royalty payments to zero for qualified new gas and cutting the minimum fixed royalty share by 50% for qualified new oil.
The bill was heard in the House Finance Committee on 4/23 with invited testimony from Furie and BlueCrest. Both companies were very supportive of the bill, with many targeted questions coming from members of the House Finance committee. Bill is scheduled for a hearing on 5/1 in House Finance.
HB 387: OIL & GAS TAX CREDIT: JACK-UP RIG
Bill proposes a targeted incentive that will increase the project economics for investing in another jack-up rig to be used in Cook Inlet to explore for and extract natural gas by providing a carry-forward tax credit equal to the costs associated with purchasing and transporting the rig to Alaska.
This is a title 43 Tax liability reduction credit, not cash credit. Equal to 100% of the cost for purchasing and transporting jack-up rig, limited to $75 million. Applies only to jack-up rigs for Cook Inlet; Includes language to ensure rigs are used in Cook Inlet for a minimum of three years.
Bill remains held in House Finance. No bill hearings on the calendar as of 4/29.
HB 388: COOK INLET RESERVE-BASED LENDING
Bill proposes the establishment of a Cook Inlet Reserve-Based Lending Fund to support increased oil and gas production in Cook Inlet. Reserve-Based Lending is an asset-based financing mechanism in the oil and gas industry in which loans are
made based on either undeveloped or developed and producing oil and gas assets.
Bill was heard and held in the House Finance Committee on 4/19.
HB 393: COOK INLET/MIDDLE EARTH GAS ROYALTIES
Bill seeks to decrease royalty rates on new wells for gas used by Alaskans to 0%. Bill also reduces the base royalty on wells currently producing to 5%. Extends incentives to “middle earth” and allows drilling and development costs to be deducted against royalty burdens.
Bill hearing on 4/16 in House Finance featured a bill presentation from Trevor Jepsen, staff to Rep. McKay. Certain members were skeptical that royalties can truly spur development more effectively than letting prices creep up in a free market scenario. Bill is still held in the House Finance Committee as of 4/29.
HB 394: RCA REGULATE NATURAL GAS STORAGE FACILITY
Bill provides for the RCA to have clear oversight authority over natural gas and LNG storage facilities, defines principles for the determination of just and reasonable rates, and introduces measures to protect sensitive financial information, mandating confidentiality for certain records.
Passed out of the House Labor & Commerce Committee on 4/17. The bill is now calendared for the House Floor today, 4/29.
MINING:
Biden Hurts Native Groups With Alaska Mining Limits
The Wall Street Journal, April 25, 2024
And green energy priorities, too. He instead leaves critical resource extraction in foreign powers’ hands.
As a young geologist in 1979, I explored Red Dog, then an undrilled outcropping of zinc and lead mineralization in the western Brooks Range of Alaska. At the Ambler District 150 miles to the southeast, large deposits rich in copper, zinc and cobalt had already been discovered and drilled. Today, Red Dog is the world’s largest zinc mine and a powerful economic driver for Alaska and Native groups. Meanwhile, little has changed in the Ambler District, a legacy President Biden appears intent to continue by canceling plans to build an access road (“Biden Piles Sanctions on Alaska,” Review & Outlook, April 20).
Red Dog is scheduled to close in 2031 when its reserves are depleted. This reflects a larger trend, as Alaska’s Native groups face a fiscal cliff from declining oil, gas, and mineral production revenue. The Ambler District would be an important contributor to their economic prosperity.
Candidate Biden told us he would make critical metals a priority for his green initiative. Not to worry, he said, raw materials would be sourced from mines overseas and used to create high-paying, value-added manufacturing jobs in the U.S. This assumes the foreign countries producing these metals play along, a prospect that seems increasingly unlikely.
China controls the global supply chains of cobalt, rare earths, germanium, and gallium. Chile recently announced plans to nationalize its lithium industry. Indonesia has curbed unrefined nickel and copper exports to control their supply chains.